Gold Down with Stocks, Euro, Risk Off

Posted by Adam King onAugust 08, 2012

August 8, 2012 – Gold prices drifted Wednesday as investors took profits on the euro and stock markets lost ground as German economic data failed to reach expectations and risk appetite in markets ran out.

While there is still some expectation in the markets that the European Central Bank will take action in order to limit or stem the Eurozone debt crisis and such speculation has limited the drop in the euro and gold, the precious metal only rose above $1,610 per troy ounce on Tuesday briefly before dropping again.

The spot price of gold was down 0.3 percent to $1,606.71 per troy ounce while US gold futures for December delivery dropped $3.30 per ounce to $1,609.50.

Gold prices have been traded in a narrow band as investors wait for more decisive word from the Federal Reserve in terms of its intended monetary policy.

Any sign of a restarted bond-buying program by the ECB would resolve the drops in the euro and give a strong boost to gold. As well, any indication of a stimulus measure beyond the extension of Operation Twist, announced two months ago, would give a strong boost to precious metals.

Pradeep Unni, a senior analyst with Richcomm Global Services, believes the resistance at $1,617-$1,620 to be pretty formidable and sees gold staying within $1,608-$1,615 range in today’s trade. He sees the gold market being supported by hopes that Europe and the United States will launch more stimulus programs as economic conditions deteriorate. Investors are betting that the debt crisis in the Eurozone could push the ECB to launch a new round of bond buying.

The euro dropped 0.3 percent against the dollar in currency markets after German economic data failed to meet expectations and showed a fall in both imports and exports.

European shares dropped 0.3 percent as German Bund futures rebounded. The ten-year Spanish government bond yields reached the 7 percent level amid speculation that the Spanish government may ask for a bailout for its sovereign debt.

General weakness throughout financial markets is weighing on gold even while calls from top Fed official Eric Rosengren urge for the central bank to launch another bond-buying program in whatever size and duration is necessary in order to get the economy back to measurable growth.

ANZ Bank wrote in a note that the gold market holding steady despite a call from Rosengren for more stimulus is a signal that American investors are not sure of the central bank’s policy or intentions.